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Intra-market commonality in liquidity: new evidence from the Polish stock exchange

Author

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  • Joanna Olbrys

    (Bialystok University of Technology, Poland)

Abstract

Research background: Empirical market microstructure research has recently shifted its focus from the examination of liquidity of individual securities towards analyses of the common determinants and components of liquidity. The identification of commonality in liquidity emerged as a new and fast growing strand of the literature on liquidity. However, the results around the world are ambiguous and rather depend on a specific stock market. Purpose of the article: The aim of this study is to explore intra-market commonality in liquidity on the Warsaw Stock Exchange (WSE) by using daily proxies of six liquidity estimates: percentage relative spread, percentage realized spread, percentage price impact, percentage order ratio, modified turnover, and modified version of the Amihud measure. The sample covers a period from January 2005 to December 2016. The database contains the group of eighty-six WSE-listed companies. Methods: The research hypothesis that there is commonality in liquidity on the Polish stock market is tested. The OLS with the HAC covariance matrix estimation and the GARCH-type models are employed to infer the patterns of liquidity co-movements on the WSE. Moreover, because the sample period is quite long, the stability of the empirical results by time period is examined. Seven 6-year time windows are utilized in the study. Findings & Value added: The regression results reveal weak evidence of co-movements in liquidity on the WSE, regardless of the choice of the liquidity proxy. Furthermore, the robustness tests based on the time rolling-window approach do not unambiguously support the research hypothesis that there is commonality in liquidity on the Polish stock market. To the best of the author’s knowledge, the empirical findings presented here are novel and have not been reported in the literature thus far.

Suggested Citation

  • Joanna Olbrys, 2019. "Intra-market commonality in liquidity: new evidence from the Polish stock exchange," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 14(2), pages 251-275, June.
    • Handle: RePEc:pes:ierequ:v:14:y:2019:i:2:p:251-275
    DOI: 10.24136/eq.2019.012
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    References listed on IDEAS

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    Cited by:

    1. Barbara Będowska-Sójka, 2016. "Liquidity Dynamics Around Jumps: The Evidence from the Warsaw Stock Exchange," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(12), pages 2740-2755, December.

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    More about this item

    Keywords

    commonality in liquidity; OLS-HAC; GARCH; time rolling-window approach; Warsaw Stock Exchange;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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